Reddit RDDT stock attracted fresh attention from Wall Street ahead of its second-quarter earnings report, after KeyBanc Capital Markets initiated coverage of the social media company with an Overweight rating and a $225 price target.
The target implies roughly 26% upside from Tuesday’s closing price. Shares were up about 1.2% in premarket trading.
KeyBanc said Reddit’s platform is well positioned to benefit from the growth of artificial intelligence, citing its large online community and the increasing value of user-generated content for AI models.
Analyst Justin Patterson wrote that Reddit’s platform has become a trusted destination for online discussions and information.
“We believe this makes Reddit complementary to search, social, web, and LLMs, providing the Company with a durable source of traffic,” Patterson said. “In turn, Reddit’s content can be monetized via ads and data licensing.”
The analyst believes Reddit remains on track to achieve its long-term target of reaching one billion users, with AI-generated citations expected to become an additional driver of user growth.
AI opportunity and advertising seen driving long-term growth
KeyBanc expects Reddit’s investments in community engagement and advertising monetization to support sustained annual revenue growth of more than 30%.
The brokerage also forecasts that the company could eventually achieve an EBITDA margin of around 50%, supported by its asset-light business model and relatively low capital expenditure requirements.
Reddit currently operates more than 100,000 Subreddits, with KeyBanc arguing that the platform’s community-driven discussions have become increasingly valuable for large language models and AI training.
“RDDT is a unique way to participate in AI growth with an asset-light business model,” Patterson wrote in the note.
The firm also noted that Reddit’s capital expenditures account for less than 1% of revenue, giving it confidence that improving EBITDA margins could translate into stronger free cash flow generation over time.
KeyBanc forecasts Reddit’s revenue reaching $3.24 billion in 2026, rising to $4.30 billion in 2027 and $5.46 billion in 2028, while EBITDA is projected to increase from $1.43 billion to $2.73 billion over the same period.
Despite the positive outlook, Reddit shares remain down about 22.4% year to date, although the stock has gained more than 20% over the past three months.
According to LSEG data, 20 of the 30 analysts covering Reddit currently rate the stock either Buy or Strong Buy.
Google AI deal remains a key risk ahead of earnings
While KeyBanc highlighted Reddit’s AI opportunity, investors are also monitoring uncertainty surrounding the company’s AI licensing agreements.
The Wall Street Journal recently reported that Reddit is reviewing its 2024 agreement that allows Google to access Reddit content for AI training.
The report prompted several brokerages to flag potential risks.
RBC Capital Markets said ending the arrangement “would be a significant step backward,” while Wells Fargo warned it could pressure user growth, revenue and valuation, including a potential $500 million impact on AI licensing revenue.
DA Davidson also cautioned that limiting AI access could weigh on daily active user growth, particularly among logged-out users.
Reddit is scheduled to report second-quarter results after the market closes on Thursday.
According to Koyfin, Wall Street expects the company to report revenue of approximately $730 million, up from $499.6 million a year earlier.
Earnings per share are projected to more than double to $0.97 from $0.45 in the prior-year period.
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